6 ms·

About $250K is needed for a company get to sustainability

82 points by jprocopio 8y ago

adamqureshi 8y ago
I have a tiny marketplace start up in the EV space and a family member wants to invest $60k. I don't need the money BUT i am at a point where i need to build v2 and add more features to make more sales with different offers. After reading this article i am not sure if it applies to my situation. I don't know if the family member's $60k investment will be enough and not sure what his expectations are in terms of ROI and if i should just wait and ask for $250k to build v2. I have a friend who can build it at a reduced rate. Kinda confused on what direction to take. The comments are very useful.
- jprocopio 8y ago
  If you can plan on how you're going to spend that $60K and those plans will get you to a new level of revenue that will provide a good return on the $60K and you're not giving up more of the company than you're comfortable with, then consider the investment. What I'm saying here is that deciding to take investment should be weighed on the merits of the investment itself. It's part of the equation, not the whole equation.
  - adamqureshi 8y ago
    Thank you. I will take any advice i can get. I have to make a decision like this week. ;-) merit of his investment is he expects an ROI or a piece of sales OR both. I'm not sure i understand the part of the equation vs the whole equation. :-(
    - jprocopio 8y ago
      So if you think of $250K as the cost to get the business to sustainable, then $60K is part of it, a bunch of your own money is part of it, and your sweat and and anyone who works for you for equity is another part. Think about time too. It could be $250K up front sourced by investors, or $250K over 3 years combining all the sources. Or somewhere in between. There is nuance. Good luck!
      - adamqureshi 8y ago
        Thank you! I really appreciate it.
- dustingetz 8y ago
  that’s an ace up your sleeve my dude save it for the time when you need it
black6 8y ago
You need two piles of money to start a business (and let’s look generally outside the box of a tech startup): 1: the money needed for initial purchase of equipment, licensing, real estate, etc. 2: three-years worth of operating expenses. I have experience starting a brewery and two Montessori schools, and Number 2 is definitely the hard one.
- jprocopio 8y ago
  Yes. A lot of people miss #2 and that's my point. Like I said, my first answer was I can start a company for ten bucks. Great. I've started a company. To truly stand it up and make it last, whether it's technology or gardening, takes time and money, all of it equivalent to about $250K. Whether that comes from investment, sweat, or out of pocket is what I'm elaborating on. Thanks.
beatgammit 8y ago
I feel like this is focused on companies that are designed to scale quickly and eventually get huge. There are a wide array of companies that don't want to scale that quickly (e.g. lifestyle businesses, like a service business). OP basically said it's what's necessary to get to series A funding, but if you don't particularly care about getting venture capital, then that figure is irrelevant. I think a better title would be "$250k is needed to get to series A funding", since that's basically what the article it about, and many (most?) startups will never seek funding outside bank loans and whatnot.
- scarface74 8y ago
  So much this. I envy companies like Fog Creek Software that were bootstrapped and he can run the company however he wants - profitably.
icedchai 8y ago
It depends on the type of company. For software, 250k won't get you much in terms of engineering resources on either of the US coasts: maybe 2 people for a year, plus cloud costs and overhead... maybe. If you're outsourcing everything, possibly this could work... Though probably not if it's your first try: you really need to know how to manage your outside folks to avoid getting fleeced. Then once you build the product, you have to market and sell it. The resources and time required is often underestimated. I'm not convinced.
alexpetralia 8y ago
Non-paywalled link: https://outline.com/2b9gJa https://outline.com/2b9gJa
- jprocopio 8y ago
  This is important to me because I'm pretty sure I did include the non-paywalled link and I always do. https://medium.com/@jproco/you-need-250-000-to-start-a-company-886298e8cf7e?source=friends_link&sk=9fbcc16a6994db38cf8ddfc99c31111b https://medium.com/@jproco/you-need-250-000-to-start-a-compa... This is what Medium calls a "friend link" and it should work for anyone whether a Medium member or not.
  - alexpetralia 8y ago
    I definitely receive this message: "You’ve reached the end of your free member preview for this month. Become a member now for $5/month to read this story and get unlimited access to all of the best stories on Medium."
    - jprocopio 8y ago
      Aw crap. So the link says "friends_link" right in the link itself. Maybe they turned it off because it's already got like 4K views. I'll send an message to support. Thanks.
    - jprocopio 8y ago
      So support came up empty on why that happened: "I can confirm this is the correct friend link. If your readers access the story via this link, they will always be able to view it, even if they are out of their free monthly previews. There aren't really any limits on this."
vinceguidry 8y ago
The price has gone down it seems. A few years ago I'd estimated it at a million, but acknowledged that technology could be a multiplier. So maybe a quarter million isn't that far off my estimate. But $250K adjusted for individual wizardry does lay bare just how daunting that climb is. Information technology is wizardry, but it's the upstart in a land where finance has basically been Sauron for hundreds of years. Engineers believe they can beat finance by working smarter, by learning more powerful spells and correspondences. It fails more often than not. When it does work, watching successful startups slowly sell their soul to the devil by incorporating finance strategies is a bit of a hobby of mine. Invariably they take their competitive advantage, the goodwill they've built up with their customers / workers, and commoditize it, making it as close to a negotiable financial instrument as possible. Uber drivers are no longer people, they are financial resources with dollar values. Uber sold them the vision of a life bounded only by your ambition to enable it to reach for the brass ring, then clawed it back once it had it out of sheer, pure greed. People who freely gave their time and attention to make Facebook something more interesting and mainstream than existing social networks which at the time seemed to be trending inexorably towards ever more niche audiences found that time and attention farmed, commoditized, and sold. Watching new money slowly morph into old money, the moral adventures of the new demigods, as well as the public's unholy fascination with them, better than any Marvel movie could possibly be. Better, because I can participate in the morality play just by opening up my phone and calling an Uber. These truly are interesting times.
- chosenbreed37 8y ago
  > People who freely gave their time and attention to make Facebook something more interesting and mainstream than existing social networks which at the time seemed to be trending inexorably towards ever more niche audiences found that time and attention farmed, commoditized, and sold. I assume you're talking about the users. If so you could argue that they were given a service free of charge. That service enabled them to fulfill some need/whim. They're weren't necessarily interested in making Facebook better. They just wanted to use it for what it could do for them. In return Facebook users their data. You're right though. These are interesting times.
  - 8y ago
owens99 8y ago
This is definitely a low-end estimate. To build a good product takes a team of four senior people (2 back-end, 1 front-end, 1 UX) 6-12 months including the iteration and modifications. Let's say the average salary for a senior person is $120k / year + health insurance and benefits, office, etc. We're already at $240k for 6 months or $480k for 12 months NOT INCLUDING health insurance and benefits. Don't tell me that a dev shop can do it much faster/cheaper. I've worked with a few of the TOP dev shops out there and you always get more bang for your buck with FTE who have a vested interest in what you are building. We haven't even discussed sales and marketing yet. This is just the cost of shipping something that works, not the cost of getting to Product/Market Fit. All-in I would say getting to Product/Market Fit can be anywhere from $1M - $6M for SOFTWARE depending on the complexity of the new market.
- PeterisP 8y ago
  It's probably better to talk about this budget not in terms of dollars but in terms of man-months or FTE-years or something like that. There's all kinds of reasons why the same thing will cost wildly different amounts of money (e.g. the cost of a good back-end engineer depending on your location), and you can get a lot of work without paying the full amount in cash, but you still need to budget that you'll need to obtain x FTE-years. Quoting the article, "I worked for free until the founder could pay me." ... you can't rely on hopes that you'll find a good deal like this, so you anyway need to budget money or effort or time (to find such people) for this amount of work instead of just saying $0.
- scarface74 8y ago
  I would never say that having less people can do it faster but probably cheaper. Spit balling here, but say four people could do it in 6 months (the aggressive end of your range), what if two people - one UX and one full stack developer took 12 months worse case. I would think: - While I don't know many "full stack developers" who are good at UX, I know plenty that can do front end development and back end development pretty well. I know a few that can go all the way down and create a decent cloud infrastructure with databases and do devops (raises hand). - By combining tasks, you don't have to double pay health insurance and benefits for four people. - Once you pay over the Social Security maximum, you don't have to pay the 6.2% employer side of Social Security, saving a little more money if you pay one or two superstars. - The whole "Mythical Man Month" thing starts to work in your favor the less communication overhead you have between developers. - Do most sites have a front end UX complicated enough that you need a full time UX guy at first? Can you outsource that?
rmah 8y ago
This is a silly and myopic article. That sounds harsh but I can't think of a nicer description. Moreover, the author himself describes doing it for far less ($10k). I don't mean to be a curmudgeon here, but IMO, I think articles like this hurt more than help. Tossing out a not low but semi-attainable number is just clickbait. In reality the amount of money varies by many orders of magnitude. It can be as low as $1k (your basic legal costs and some cheap hosting) to as high as $100mil (you need facilities, manufacturing, warehousing, retail channels, etc, etc). Each business is different and how much you will need to "get to sustainability" will vary based on the market niche, strategy, competition, positioning, market landscape, timing, regulatory burdens, etc, etc. Hell, even for something fairly well defined business concept like "start a bar in a medium-sized midwestern US city" the costs can vary by an order of magnitude depending on the specifics. Better advice: research your market and plan out what you think you'll need. Estimate the various expenses that lead to revenues, including the time-delays between when you spend and when you receive funds. Then do it again for a less-than-rosy scenario. Finally accept that your guesstimate is probably wrong and go for it anyway!
- jprocopio 8y ago
  Actually I didn't say I did it for $10K, I said I'd DO it for 10 dollars. I get you. I'm talking about the difference between calling something a company and building a sustainable company from zero. $250K is arbitrary because any number would be arbitrary, as you note, but it's also a good minimum baseline to shoot for. Any one of the caveats I discuss in the article could change the number or how that money is aggregated or how long it takes to spend it.
  - icedchai 8y ago
    You can't say 250k is a baseline unless you know what sort of company you're building. For a services / consulting company where you're getting revenue upfront, it is probably more than enough... For a product company, it may be way too little.
    - scarface74 8y ago
LaserToy 8y ago
I don’t think this number is reasonable if you are going for a tech solution, especially if you trying to build something fairly complex. Less then a half of what strong SWE is paid in Silicon Valley... or almost total of one who works in a wrong place, or waits for stocks. That is why startups can’t afford strong engineers, unless they want to invest their time for a chance.
slap_shot 8y ago
It depends entirely on the founding team the product you're trying to achieve, but $250K seems about right. I started a SaaS company last year and have grown it to a mid six-figure run rate. Even though it worked out, it wasn't the right way to do it. If I could go back in time and pick a dollar amount of raised day one, it's probably $350K. Startup outcomes are fairly binary, so just raise the money you need to operate correctly as soon as you can.
Phenix88be 8y ago
With that amount of money, I can live 100 years. Housing, insurance, food, every basic need covered (and I ll own my house for goods, no loan). Why the hell would I start a company ?
- dumbfoundded 8y ago
  Good question. Don't. If you want to start a company to make money then it's probably a bad decision. Become an SV software engineer or a wallstreet banker. You can become a skilled trades-person and make 6 figures within 5 years. Starting a company lowers the floor and raising the ceiling on your potential outcomes. It is a giant risk.
  - Phenix88be 8y ago
    I don't understand. Making money is the goal of a company. People start company to get rich. > Become an SV software engineer or a wallstreet banker I don't know what a "SV" software engineer (non english native, sorry if it's obvious). I m a Web developer from Belgium and I make just a little more money than a factory worker. It's not the US here...
    - droithomme 8y ago
      > People start company to get rich. Some people that try to start a company do it for that reason. Most of those people with that motivation fail miserably. The viewpoint that entrepreneurship is the domain of the greedy pigs that must be sneered at is viewpoint of the entitled, supremacist, antimeritocracy failed old world aristocratic elite, the modern anarchists, and the stalinists.
    - dumbfoundded 8y ago
      By SV, I meant Silicon Valley. If you work for a big company for many years and you do well, you basically guarantee that you'll have a couple million dollars by the time you're 40. Similarly with finance, law, medicine. There are many high paying jobs that guarantee you to have a very comfortable life. Entrepreneurs have the opposite. Sure you could be worth 100s of millions but most likely you will lose your money. Or work twice as hard to provide yourself half the salary.
deleted 8y ago
[deleted]
LeicaLatte 8y ago
YC invests about 120k at a minimum, doesn't it?

82 points by jprocopio 8y ago

I have a tiny marketplace start up in the EV space and a family member wants to invest $60k. I don't need the money BUT i am at a point where i need to build v2 and add more features to make more sales with different offers. After reading this article i am not sure if it applies to my situation. I don't know if the family member's $60k investment will be enough and not sure what his expectations are in terms of ROI and if i should just wait and ask for $250k to build v2. I have a friend who can build it at a reduced rate. Kinda confused on what direction to take. The comments are very useful.

jprocopio 8y ago
If you can plan on how you're going to spend that $60K and those plans will get you to a new level of revenue that will provide a good return on the $60K and you're not giving up more of the company than you're comfortable with, then consider the investment. What I'm saying here is that deciding to take investment should be weighed on the merits of the investment itself. It's part of the equation, not the whole equation.
- adamqureshi 8y ago
  Thank you. I will take any advice i can get. I have to make a decision like this week. ;-) merit of his investment is he expects an ROI or a piece of sales OR both. I'm not sure i understand the part of the equation vs the whole equation. :-(
  - jprocopio 8y ago
    So if you think of $250K as the cost to get the business to sustainable, then $60K is part of it, a bunch of your own money is part of it, and your sweat and and anyone who works for you for equity is another part. Think about time too. It could be $250K up front sourced by investors, or $250K over 3 years combining all the sources. Or somewhere in between. There is nuance. Good luck!
    - adamqureshi 8y ago
      Thank you! I really appreciate it.
dustingetz 8y ago
that’s an ace up your sleeve my dude save it for the time when you need it

black6 8y ago

You need two piles of money to start a business (and let’s look generally outside the box of a tech startup): 1: the money needed for initial purchase of equipment, licensing, real estate, etc. 2: three-years worth of operating expenses. I have experience starting a brewery and two Montessori schools, and Number 2 is definitely the hard one.

jprocopio 8y ago
Yes. A lot of people miss #2 and that's my point. Like I said, my first answer was I can start a company for ten bucks. Great. I've started a company. To truly stand it up and make it last, whether it's technology or gardening, takes time and money, all of it equivalent to about $250K. Whether that comes from investment, sweat, or out of pocket is what I'm elaborating on. Thanks.

beatgammit 8y ago

I feel like this is focused on companies that are designed to scale quickly and eventually get huge. There are a wide array of companies that don't want to scale that quickly (e.g. lifestyle businesses, like a service business). OP basically said it's what's necessary to get to series A funding, but if you don't particularly care about getting venture capital, then that figure is irrelevant. I think a better title would be "$250k is needed to get to series A funding", since that's basically what the article it about, and many (most?) startups will never seek funding outside bank loans and whatnot.

scarface74 8y ago
So much this. I envy companies like Fog Creek Software that were bootstrapped and he can run the company however he wants - profitably.

icedchai 8y ago

It depends on the type of company. For software, 250k won't get you much in terms of engineering resources on either of the US coasts: maybe 2 people for a year, plus cloud costs and overhead... maybe. If you're outsourcing everything, possibly this could work... Though probably not if it's your first try: you really need to know how to manage your outside folks to avoid getting fleeced. Then once you build the product, you have to market and sell it. The resources and time required is often underestimated. I'm not convinced.

alexpetralia 8y ago

Non-paywalled link: https://outline.com/2b9gJa https://outline.com/2b9gJa

jprocopio 8y ago
This is important to me because I'm pretty sure I did include the non-paywalled link and I always do. https://medium.com/@jproco/you-need-250-000-to-start-a-company-886298e8cf7e?source=friends_link&sk=9fbcc16a6994db38cf8ddfc99c31111b https://medium.com/@jproco/you-need-250-000-to-start-a-compa... This is what Medium calls a "friend link" and it should work for anyone whether a Medium member or not.
- alexpetralia 8y ago
  I definitely receive this message: "You’ve reached the end of your free member preview for this month. Become a member now for $5/month to read this story and get unlimited access to all of the best stories on Medium."
  - jprocopio 8y ago
    Aw crap. So the link says "friends_link" right in the link itself. Maybe they turned it off because it's already got like 4K views. I'll send an message to support. Thanks.
  - jprocopio 8y ago
    So support came up empty on why that happened: "I can confirm this is the correct friend link. If your readers access the story via this link, they will always be able to view it, even if they are out of their free monthly previews. There aren't really any limits on this."

vinceguidry 8y ago

The price has gone down it seems. A few years ago I'd estimated it at a million, but acknowledged that technology could be a multiplier. So maybe a quarter million isn't that far off my estimate. But $250K adjusted for individual wizardry does lay bare just how daunting that climb is. Information technology is wizardry, but it's the upstart in a land where finance has basically been Sauron for hundreds of years. Engineers believe they can beat finance by working smarter, by learning more powerful spells and correspondences. It fails more often than not. When it does work, watching successful startups slowly sell their soul to the devil by incorporating finance strategies is a bit of a hobby of mine. Invariably they take their competitive advantage, the goodwill they've built up with their customers / workers, and commoditize it, making it as close to a negotiable financial instrument as possible. Uber drivers are no longer people, they are financial resources with dollar values. Uber sold them the vision of a life bounded only by your ambition to enable it to reach for the brass ring, then clawed it back once it had it out of sheer, pure greed. People who freely gave their time and attention to make Facebook something more interesting and mainstream than existing social networks which at the time seemed to be trending inexorably towards ever more niche audiences found that time and attention farmed, commoditized, and sold. Watching new money slowly morph into old money, the moral adventures of the new demigods, as well as the public's unholy fascination with them, better than any Marvel movie could possibly be. Better, because I can participate in the morality play just by opening up my phone and calling an Uber. These truly are interesting times.

chosenbreed37 8y ago
> People who freely gave their time and attention to make Facebook something more interesting and mainstream than existing social networks which at the time seemed to be trending inexorably towards ever more niche audiences found that time and attention farmed, commoditized, and sold. I assume you're talking about the users. If so you could argue that they were given a service free of charge. That service enabled them to fulfill some need/whim. They're weren't necessarily interested in making Facebook better. They just wanted to use it for what it could do for them. In return Facebook users their data. You're right though. These are interesting times.
- 8y ago

owens99 8y ago

This is definitely a low-end estimate. To build a good product takes a team of four senior people (2 back-end, 1 front-end, 1 UX) 6-12 months including the iteration and modifications. Let's say the average salary for a senior person is $120k / year + health insurance and benefits, office, etc. We're already at $240k for 6 months or $480k for 12 months NOT INCLUDING health insurance and benefits. Don't tell me that a dev shop can do it much faster/cheaper. I've worked with a few of the TOP dev shops out there and you always get more bang for your buck with FTE who have a vested interest in what you are building. We haven't even discussed sales and marketing yet. This is just the cost of shipping something that works, not the cost of getting to Product/Market Fit. All-in I would say getting to Product/Market Fit can be anywhere from $1M - $6M for SOFTWARE depending on the complexity of the new market.

PeterisP 8y ago
It's probably better to talk about this budget not in terms of dollars but in terms of man-months or FTE-years or something like that. There's all kinds of reasons why the same thing will cost wildly different amounts of money (e.g. the cost of a good back-end engineer depending on your location), and you can get a lot of work without paying the full amount in cash, but you still need to budget that you'll need to obtain x FTE-years. Quoting the article, "I worked for free until the founder could pay me." ... you can't rely on hopes that you'll find a good deal like this, so you anyway need to budget money or effort or time (to find such people) for this amount of work instead of just saying $0.
scarface74 8y ago
I would never say that having less people can do it faster but probably cheaper. Spit balling here, but say four people could do it in 6 months (the aggressive end of your range), what if two people - one UX and one full stack developer took 12 months worse case. I would think: - While I don't know many "full stack developers" who are good at UX, I know plenty that can do front end development and back end development pretty well. I know a few that can go all the way down and create a decent cloud infrastructure with databases and do devops (raises hand). - By combining tasks, you don't have to double pay health insurance and benefits for four people. - Once you pay over the Social Security maximum, you don't have to pay the 6.2% employer side of Social Security, saving a little more money if you pay one or two superstars. - The whole "Mythical Man Month" thing starts to work in your favor the less communication overhead you have between developers. - Do most sites have a front end UX complicated enough that you need a full time UX guy at first? Can you outsource that?

rmah 8y ago

This is a silly and myopic article. That sounds harsh but I can't think of a nicer description. Moreover, the author himself describes doing it for far less ($10k). I don't mean to be a curmudgeon here, but IMO, I think articles like this hurt more than help. Tossing out a not low but semi-attainable number is just clickbait. In reality the amount of money varies by many orders of magnitude. It can be as low as $1k (your basic legal costs and some cheap hosting) to as high as $100mil (you need facilities, manufacturing, warehousing, retail channels, etc, etc). Each business is different and how much you will need to "get to sustainability" will vary based on the market niche, strategy, competition, positioning, market landscape, timing, regulatory burdens, etc, etc. Hell, even for something fairly well defined business concept like "start a bar in a medium-sized midwestern US city" the costs can vary by an order of magnitude depending on the specifics. Better advice: research your market and plan out what you think you'll need. Estimate the various expenses that lead to revenues, including the time-delays between when you spend and when you receive funds. Then do it again for a less-than-rosy scenario. Finally accept that your guesstimate is probably wrong and go for it anyway!

jprocopio 8y ago
Actually I didn't say I did it for $10K, I said I'd DO it for 10 dollars. I get you. I'm talking about the difference between calling something a company and building a sustainable company from zero. $250K is arbitrary because any number would be arbitrary, as you note, but it's also a good minimum baseline to shoot for. Any one of the caveats I discuss in the article could change the number or how that money is aggregated or how long it takes to spend it.
- icedchai 8y ago
  You can't say 250k is a baseline unless you know what sort of company you're building. For a services / consulting company where you're getting revenue upfront, it is probably more than enough... For a product company, it may be way too little.
  - scarface74 8y ago

LaserToy 8y ago

I don’t think this number is reasonable if you are going for a tech solution, especially if you trying to build something fairly complex. Less then a half of what strong SWE is paid in Silicon Valley... or almost total of one who works in a wrong place, or waits for stocks. That is why startups can’t afford strong engineers, unless they want to invest their time for a chance.

slap_shot 8y ago

It depends entirely on the founding team the product you're trying to achieve, but $250K seems about right. I started a SaaS company last year and have grown it to a mid six-figure run rate. Even though it worked out, it wasn't the right way to do it. If I could go back in time and pick a dollar amount of raised day one, it's probably $350K. Startup outcomes are fairly binary, so just raise the money you need to operate correctly as soon as you can.

Phenix88be 8y ago

With that amount of money, I can live 100 years. Housing, insurance, food, every basic need covered (and I ll own my house for goods, no loan). Why the hell would I start a company ?

dumbfoundded 8y ago
Good question. Don't. If you want to start a company to make money then it's probably a bad decision. Become an SV software engineer or a wallstreet banker. You can become a skilled trades-person and make 6 figures within 5 years. Starting a company lowers the floor and raising the ceiling on your potential outcomes. It is a giant risk.
- Phenix88be 8y ago
  I don't understand. Making money is the goal of a company. People start company to get rich. > Become an SV software engineer or a wallstreet banker I don't know what a "SV" software engineer (non english native, sorry if it's obvious). I m a Web developer from Belgium and I make just a little more money than a factory worker. It's not the US here...
  - droithomme 8y ago
    > People start company to get rich. Some people that try to start a company do it for that reason. Most of those people with that motivation fail miserably. The viewpoint that entrepreneurship is the domain of the greedy pigs that must be sneered at is viewpoint of the entitled, supremacist, antimeritocracy failed old world aristocratic elite, the modern anarchists, and the stalinists.
  - dumbfoundded 8y ago
    By SV, I meant Silicon Valley. If you work for a big company for many years and you do well, you basically guarantee that you'll have a couple million dollars by the time you're 40. Similarly with finance, law, medicine. There are many high paying jobs that guarantee you to have a very comfortable life. Entrepreneurs have the opposite. Sure you could be worth 100s of millions but most likely you will lose your money. Or work twice as hard to provide yourself half the salary.

deleted 8y ago

[deleted]

LeicaLatte 8y ago

YC invests about 120k at a minimum, doesn't it?